May 7, 2012

Epic Journey or Grand Delusions [127/365]

Starting today, facebook [fb] will go public.
Valued at $90 billion and set to mop up as much as $20 billion, this IPO is touted as one of the largest IT IPO's ever, and is hoping to have dream run at the boroughs.

Judging by several factors, buying stock in facebook could easily be one of the best things you can do. Considering how it's grown in just eight years, learning from the mistakes of it's predecessors - Orkut, MySpace - facebook now has a worldwide community that rivals any of it's compatriots.
To a layperson like you and me, buying a facebook stock makes as much money-sense as tanking up on the night before the fuel prices go up.

Is the Facebook IPO really what it is made out to be?
Are we really witnessing the rise of a giant or another bubble about to go bust.

First the facts:
Facebook has the largest online population of humans. Ever. Infact if facebook was to become a country, it will be the third most populous in the world. And growing.

Owner and founder, Mark Zuckerberg is the youngest billionaire in the world. With an estimated net-worth of $17.5 billion, this IPO will make him the richest human being in history. The flip side is that he ends up paying almost 80% of what he will earn from sale of his share of stock mandatory taxes in the United States. And yes, of course the fact that he can get fired too.

And now, for the reality:
Can you really trust an IPO which is being advertised as the biggest thing that will ever be, where the founder/owner chooses when and how much he/she needs without considering how that extra $ will add to the value, is like playing Russian Roulette.

Facebook is Zuckerberg and Zuckerberg is Facebook.
Simple. $20 billion is the price we pay to be able to access 900 million users. And sources say Zuckerberg will still retain his 57% voting stake in the company. Voila!

Notorious for the way he's handled his company and his rivals so far, what remains to be seen is how much power will he relinquish when it goes public.

While the company itself is profitable, this alone cannot guarantee a golden egg for its eternity. Analysts will tell you that it's revenue has fallen in the past couple of years. And Mark knows this. He acquired Instagram, an online photo editing software company, for a whooping $1 billion dollars a few weeks ago. Speculations ran thick and wild on why a company like facebook would buy a startup with just a handful of people for such an amount, but the fact is that this acquisition has only sweetened the deal for facebook.

Lastly and most importantly, no one can really tell how or why internet companies reward themselves a billion dollar price tag. While facebook's business model is extremely robust, it's valuation is something that may need closer scrutiny.
Nonetheless, IPO's are about optimism, and facebook has certainly drummed up enough supporters to feel good about it's IPO.

Considering how big this IPO has been in the news, I would take Warren Buffet's word when he says 'I think the worst mistake you can make in stocks is to buy or sell based on current headlines'